UNITED STATES, PETITIONER v. JERRY W. CARLTON

on writ of certiorari to the united states court
of appeals for the ninth circuit

[June 13, 1994]

Justice O'Connor , concurring in the judgment.

Thus, although respondent Carlton may have made a "purely tax motivated stock transfe[r]," ante, at 7, I do
not understand the Court to express any normative
disapproval of this course of action. As executor of
Willametta Day's estate, it was entirely appropriate for
Carlton to seek to reduce the estate taxes. And like all
taxpayers, Carlton was entitled to structure the estate's
affairs to comply with the tax laws while minimizing taxliability. As Learned Hand observed with characteristic
acerbity:

"[A] transaction, otherwise within an exception of
the tax law, does not lose its immunity, because it
is actuated by a desire to avoid, or, if one choose, to
evade, taxation. Any one may so arrange his affairs
that his taxes shall be as low as possible; he is not
bound to choose that pattern which will best pay the
Treasury; there is not even a patriotic duty to
increase one's taxes. Therefore, if what was done
here, was what was intended by [the statute], it is
of no consequence that it was all an elaborate
scheme to get rid of [estate] taxes, as it certainly
was." Helvering v. Gregory, 69 F. 2d 809, 810 (CA2
1934) (citations omitted), aff'd, 293 U.S. 465 (1935).

To say that Carlton did nothing wrong in claiming the
deduction does not, of course, answer the question
whether Congress deprived him of due process by
amending §2057. As we have noted, "the retroactive
aspects of economic legislation, as well as the prospective aspects, must meet the test of due process: a
legitimate legislative purpose furthered by rational
means." General Motors Corp. v. Romein, 503 U. S. ___,
___ (1992) (slip op., at 9) (internal quotation marks
omitted).

The Court finds it relevant that, according to prominent Members of the tax writing committees of each
House, the statute as originally enacted would have cost
the Government too much money and would have
allowed taxpayers to avoid tax by engaging in sham
transactions. See ante, at 5-6. Thus, the Court reasons
that the amendment to §2057 served the legislative
purpose of "correct[ing]" a "mistake" Congress made the
first time. Id., at 6. But this mode of analysis proves
too much. Every law touching on an area in which Congress has previously legislated can be said to serve thelegislative purpose of fixing a perceived problem with
the prior state of affairs--there is no reason to pass a
new law, after all, if the legislators are satisfied with
the old one. Moreover, the subjective motivation of
Members of Congress in passing a statute--to the extent
it can even be known--is irrelevant in this context: it is
sufficient for due process analysis if there exists some
legitimate purpose underlying the retroactivity provision.
Cf. FCC v. Beach Communications, Inc., 508 U. S. ___,
___ (1993) (slip op., at 7-9).

Retroactive application of revenue measures is rationally related to the legitimate governmental purpose of
raising revenue. In enacting revenue measures, retroactivity allows "the legislative body, in the revision of tax
laws, to distribute increased costs of government among
its taxpayers in the light of present need for revenue
and with knowledge of the sources and amounts of the
various classes of taxable income during the taxable
period preceding revision." Welch v. Henry, 305 U.S. 134, 149 (1938). For this reason,

"[i]n enacting general revenue statutes, Congress
almost without exception has given each such
statute an effective date prior to the date of actual
enactment. . . . Usually the `retroactive' feature has
application only to that portion of the current
calendar year preceding the date of enactment, but
[some statutes have been] applicable to an entire
calendar year that had expired preceding enactment.
This `retroactive' application apparently has been
confined to short and limited periods required by the
practicalities of producing national legislation. We
may safely say that it is a customary congressional
practice." United States v. Darusmont, 449 U.S. 292, 296-297 (1981) (per curiam).

But "the Court has never intimated that Congress
possesses unlimited power to `readjust rights andburdens . . . and upset otherwise settled expectations.' "
Connolly v. Pension Benefit Guaranty Corp., 475 U.S. 211, 229 (1986) (concurring opinion) (brackets omitted),
quoting Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 16 (1976). The governmental interest in revising the
tax laws must at some point give way to the taxpayer's
interest in finality and repose. For example, a "wholly
new tax" cannot be imposed retroactively, United States
v. Hemme, 476 U.S. 558, 568 (1986), even though such
a tax would surely serve to raise money. Because the
tax consequences of commercial transactions are a
relevant, and sometimes dispositive, consideration in a
taxpayer's decisions regarding the use of his capital, it
is arbitrary to tax transactions that were not subject to
taxation at the time the taxpayer entered into them.
See Welch v. Henry, supra, at 147.

Although there is also an element of arbitrariness in
retroactively changing the rate of tax to which the
transaction is subject, or the availability of a deduction
for engaging in that transaction, our cases have recognized that Congress must be able to make such adjustments in an attempt to equalize actual revenue and
projected budgetary requirements. In every case in
which we have upheld a retroactive federal tax statute
against due process challenge, however, the law applied
retroactively for only a relatively short period prior to
enactment. See United States v. Hemme, supra, at 562
(1 month); United States v. Darusmont, supra, at
294-295 (10 months); United States v. Hudson, 299 U.S. 498, 501 (1937) (1 month). In Welch v. Henry,
supra, the tax was enacted in 1935 to reach transactions
completed in 1933; but we emphasized that the state
legislature met only biannually and it made the revision "at the first opportunity after the tax year in which the
income was received." 305 U. S., at 151. A period of
retroactivity longer than the year preceding the legislative session in which the law was enacted would raise,in my view, serious constitutional questions. But in
keeping with Congress' practice of limiting the retroactive effect of revenue measures (a practice that may
reflect Congress' sensitivity to the due process problems
that would be raised by overreaching), the December
1987 amendment to §2057 was made retroactive only to
October 1986. Given our precedents and the limited
period of retroactivity, I concur in the judgment of the
Court that applying the amended statute to respondent
Carlton did not violate due process.